Johannesburg - Wooltru had sold CNA to a party that did not have the capital to fund the purchase price, let alone CNA's operational costs, Tim Holden, the managing director of CNA, said yesterday at the section 417 investigation into the company.
In addition, the purchaser - Gordon Kay & Associates - could not add any value to the running of CNA because it did not have any retail experience. Holden said those reasons led him to believe that CNA was sold to the wrong shareholders.
He also said if CNA's cash flow had been kept in the business and not used to pay for Gordon Kay's purchase of CNA, "we would not be sitting here at this inquiry".
Holden said it was his impression at the time of the sale to Gordon Kay, that Wooltru never envisaged that the purchase price would be paid by CNA and not by the majority shareholders who purchased the retail group.
In February 2001, as part of the unbundling of Wooltru, a buyer was found for CNA with the assistance of Cazenove investment bank.
Gordon Kay was selected from seven potential purchasers. The purchase price was set at R192 million, consisting of an initial R150 million and a subsequent R42 million.
The inquiry heard how about R122 million of that purchase price was paid out of CNA's own cash flow.
By restructuring a retailer agreement between CNA and cellular provider MTN, the purchasers were able to reduce the purchase liability to Wooltru by R85 million; two amounts of R15 million each were paid to Wooltru through CNA's shareholder loan account; relief from an onerous Jet Park lease was used to reduce the Gordon Kay liability by a further R7 million.
Holden said he could see no benefit for CNA from any of these transactions. But he added that it was obvious that Gordon Kay would benefit and, to a certain extent, Wooltru.
A restructuring of the CNA group, which was initiated around November 2001, was aimed at creating a corporate entity that would be able to attract new capital through the introduction of new shareholders.
The restructuring involved splitting CNA into two operational entities with the "Top 61" stores being hived off from the remainder. Those stores contained mainly profitable outlets with a similar shopping experience, said Holden.
The remaining stores were to be bought by a consortium, which was expected to close down a huge number of them.